Companies that dominate an industry usually do so by developing a competitive advantage, often control of a unique resource or a superior technology, that allows them to manufacture products at a lower cost than their competitors can. Nondominant companies that seek to increase their share of the market generally must endure drastically lower profit margins as they win customers away from the dominant companies by matching their prices. Companies that increase their market share in this way and do not change their disadvantage in production costs relative to those of the dominant companies will, therefore, eventually lose their recently won market share as prices return to normal levels.

Which of the following is an assumption upon which the conclusion of the argument depends?


A. Few companies lacking competitive advantages in costs of production that have increased their market share will sustain price margins lower than those of firms with production cost advantages.

B. Dominant companies generally cannot maintain their competitive advantage over long periods of time unless they acquire additional unique resources or develop improved technology.

C. Nondominant companies can improve their competitive positions by developing unique resources or technological innovations similar to those of dominant companies.

D. A dominant company with a competitive advantage generally will not lower its prices to undercut those of a firm that lacks competitive advantages in production costs.

E. Acquiring unique resources or developing superior technology is a difficult undertaking that requires substantial investment on the part of a company seeking to gain a competitive advantage in production costs.

Hi Rishav,

Even I did the same mistake, I opted for D first. But later realized that argument is discussing about the noncompetitive company which has already used that strategy and gained market share. It will not be able to retain the same, if price increase. so the only answer choice goes with that is A.

I hope that helps.

Regards
Nidhi

The conclusion is that companies without a competitive advantage will not
be able to retain an increase in market share

They will lose the market share
as they raise their prices back to original levels.

What if they decide not to increase the prices.... The author assumes that they
aren’t willing to continue with lower profit margins...
A dismisses this case -----Answer


Companies that can develop competitive advantages are irrelevant to
the conclusion....Hence E is wrong..
Hope its clear

Hi
Thank you Vyshakh. Above explanation was helpful but as per my understanding in order for the conclusion to hold true , shouldn't the assumption state otherwise . See below.

"Few companies lacking competitive advantages
in costs of production that have
increased their market share will NOT sustain
price margins lower than those of firms with
production cost advantages.

Thanks

Why not option D ?

It says that the competitive once will not keep the costs lower. If it does , doesn't the whole argument of prices falling back to normal levels will fail?

Please shed some light.

Regards
Rishav

Posted from my mobile device

A is the best answer. The conclusion here is that companies that do not have production advantages may be able to gain market share by accepting lower profit margins (matching their prices with those of the companies that do have production advantages) but they will lose that market share when they raise the prices to normal levels. This relies on the assumption that they will eventually raise their prices. A, very clearly states that few of the companies that lack production advantages can afford to function with lower profit margins, over time.